Could an interest rate rise halt SME growth?

SMEs are widely reported to be looking at various methods of expansion, but growth plans could be thwarted by a potential rise in interest rates.


That is the revelation from AXA Business Insurance following a survey into what an increase in rates could mean.


It is thought that a rate change could stifle growth, even though the latest Optimism Index says 82% of businesses remain optimistic.


However, what is concerning is that nearly 10% fewer SMEs carry the same amount of confidence as they did 12 months ago.


Retail and distribution businesses also saw growth expectations fall, from 71% last year to just 58% in the recent survey.


SMEs are also slowing recruitment in some sectors, with a 40% drop reported in those considering whether to hire new staff.


Decreasing optimism


A third of SMEs reported a lowering of optimism at the prospect of a potential interest rate increase, while this figure rose to 41% for construction and industrial businesses.


However, issues in the Eurozone are not considered to be much of an issue, as only a quarter of SMEs said it was slowing their optimism – down from one third a year ago.


This is despite potential financial issues in several of the main European countries and from the developing situation in Ukraine.


The decline in optimism this year could also be related to a surge in 2013 when the economy first showed signs of recovery, pushing the confidence to unrealistic levels.


Despite the recovery there remains a need to keep a watchful eye on business finances to ensure that companies stay out of trouble.


However, in certain situations it cannot be avoided and it is at these times when corporate insolvency methods should be considered to keep a company trading.


When early action is taken, it is possible to restrict the effects of any cash-flow issues and increase the likelihood of a business recovery.


By Phil Smith


If you would like to have a free no obligation chat with one of our advisers please call us on 0207 186 1144.

View all Business Insights